The Strange Way Money Is Made

Ian Jack writes:

Poor people always tell you more than the rich. Any reporter knows this. Orwell must have known it. In the face of journalistic inquiry, even the modestly well off tend to clam up.

Imagine it: a young woman knocks on your door and says she's doing a piece on middle-class wealth, and could she ask about your income, your savings, your holiday home if you have one, your weekly Waitrose bill, and so on.

Do you invite her in and put the kettle on and shout to your husband through the kitchen door: "There's a nice young woman here from the Guardian and she wants to know all our financial details. Can you tell me where you've put the Isa certificates? Oh, and that buy-to-let mortgage agreement?" I think not.

But in my experience something like that used to be the case when reporters called on families who were hard up. They took a benign view of our interest, perhaps because they had nothing to hide, if they were honest, and might even have felt that by disclosing their circumstances they were doing some good.

This may no longer be so true. Benefits Street and other series may have made the poor warier of the idea that journalism is on their side; that a TV crew has arrived "just so we can show the other half how difficult your lives are and how brilliant you are at coping".

What remains true is that, having got the information, how little we, the better off, understand it. Tax credits, for example: how do they work? I read Polly Toynbee, I consult Wikipedia, but I'm still not sure.

It is, of course, my good fortune that I've never needed to understand; that, outside child benefit and the NHS, my claims on the welfare system have been so few. But a society divided by wealth also has its classes kept apart by ignorance.

Among the fault lines that run through British society, one of the largest is this matter of simple comprehension, between those who understand the welfare system, because they use it, and the rest of us for whom it's a complicated abstraction allegedly being simplified by Iain Duncan Smith.

An old friend emailed me recently from the northern city that has been his home since birth, though we first met far away in Pakistan where work had taken both of us.

He's a freelance – I won't say in what or name him – but when he started out his city still exported machinery across the world and his work was associated with that.

He's 62 now, single, no family, and owns a small house. "Work seems to have dried up these last few months," he wrote in March, "so I may have to sign on again – and no doubt get threatened with being 'sanctioned' again, although now I hear that for new claimants my age they're recommending pension credits – looks interesting, anything to get the JSA numbers down.

"They're certainly not making it any easier for these youngsters that are claiming – the jobcentre staff say they have quotas for sanctioning but the government won't admit to it, they really are a bunch of bastards."

I knew that JSA meant job seekers' allowance, which is £71.70 a week for a single person, and I suspected that he feared "sanctioning" – having his benefits cut – because he wouldn't be interviewed for any old job.

But pension credits? His next email took the time to explain.

So far as he could see, "the holy grail" of government policy was to reduce the number of JSA claimants by whatever means so that the unemployment figures look better. ("Thatcher did this by allowing millions to claim disability allowance, and we are paying the price for that!") 

Money could be saved by "bringing in the heavies" to take over from the "usually sympathetic local jobcentre people" and sanctioning the unemployed for not applying for enough jobs ("10, 20 or maybe 50 jobs a week") or for missing an appointment. Reducing numbers, on the other hand, required a different technique.

After a year of signing on as unemployed, a jobseeker is obliged to turn to one of the government's workfare programmes that are run by private companies where, in my friend's words, "they either try to find you work or, if you have nous, persuade you to go self-employed".

Two years ago, he was sent to be interviewed by one of these companies, Ingeus, which operates under the slogan: "Our role is simple – to help people realise their potential." His interviewer strongly recommended self-employment in words my friend always remembered:

"Look, you'll get £50 working tax credits, housing and council tax benefits, so you only have to earn £22 a week to be better off [than on JSA]. We'll give you a start-up grant of say £300 and we're off your back."

In fact, my friend was already self-employed – self-employed in theory and often unemployed in practice. 

His work picked up for a while, but is now again in the doldrums. If the government still wants to keep him out of the unemployment figures then the pension credit, a supplement to low incomes for people approaching pensionable age, is the obvious way to go.

Before his work ran out, my friend earned £2,500 in the last financial year and received £50 a week in working tax credits and full relief on council tax. After some calculations, he thinks he'd be entitled to pension credits at the top rate of £145 a week while still preserving some or all of his council tax benefit.

To my friend, this looks a good deal. He won't need to sign on once a fortnight and the £7,250 a year in pension credits comes very close to the sum he needs to live on: he leads, as he says, a simple life.

But the term "pension credit" confuses him, because, having neglected to pay enough national insurance contributions, his actual pension when he comes to claim it in three or four years' time will be lower than the money he could receive now, as a so-called credit.

Nor is this his only confusion.

Why is the government so keen to encourage private companies "to make a fortune out of the unemployed", paying the likes of Ingeus up to £14,000 for every person they help into "sustained employment" (including self-employment with small and precarious earnings), when jobcentres are offering £49 a week under the new enterprise allowance scheme to anyone willing to call themselves self-employed? If you want to cheat the figures, doesn't the state offer a cheaper way of doing it?

That may be so, but more states than the United Kingdom have offloaded their responsibilities under a smokescreen of talk that capitalism knows best.

Ingeus, for example, was founded in 1989 in Australia as a small organisation called Work Directions dedicated to getting apparently "unemployable" people, often with physical disabilities, into employment. 

There was an inspiring story behind it. Its founder, Therese Rein, had seen her war-wounded father overcome severe handicap to work as an aeronautical engineer.

When the age of outsourcing began to dawn in the early 2000s, it rebranded itself as Ingeus and was soon opening branches in countries as disparate as Sweden and Saudi Arabia as a provider of welfare-to-work and business psychology services.

When Rein's husband, Kevin Rudd, became prime minister, the group sold off its Australian business to avoid perceptions of conflict of interest, but three years later Duncan Smith's work programme opened a large new opportunity in the UK.

Getting British people into work or "work" is estimated to generate about two-thirds of Ingeus's turnover.

Last month Ingeus was sold to an American company, Providence Service Corporation, in a complicated deal that was reported to be worth $225m (£135m).

Every time you hear of the growth in the self-employed, which allows the government to claim that "more people are in work than ever before", think of a graph at the new company headquarters in Tucson, Arizona, and the strange way money is made.